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 The driving force behind the consulting project is the United Arab
Emirates, which along with Saudi Arabia and Kuwait has showered
Egypt with billions of dollars in aid since Sisi removed the Muslim
Brotherhood from power last year, sources familiar with the exercise
and businessmen told Reuters.
If Egypt were to accept reforms proposed by U.S. consultancy
Strategy& and international investment bank Lazard, this could be
used as a basis for reopening talks on a loan deal with the
International Monetary Fund which ousted Islamist President Mohamed
Mursi failed to seal, unwilling to impose unpopular reforms.
Gulf allies opposed to the Muslim Brotherhood have extended a
lifeline exceeding $12 billion in cash and petroleum products to
help Egypt stave off economic collapse.
The hiring of Lazard and Strategy& - formerly called Booz & Company
- suggests the Gulf states want to ensure aid is spent efficiently
in a country where past leaders with military backgrounds have often
mismanaged the economy.
"UAE are involved in the process, as they are among the country’s
lenders. Lending money is not enough in itself. You also need to
make sure the government has the means to identify what needs to
change and execute it," said one of the sources familiar with the
situation.
An IMF deal could help to inspire confidence among foreign investors
who have been unnerved by three years of turmoil and a range of
other problems ranging from costly energy subsidies to a lack of
transparency in economic management.
It's unclear if Sisi, who stood down as military chief in March
before winning a presidential election last month, has met the
Western consulting companies. But advisers to the man who has been
de facto leader of Egypt since Mursi's fall have almost certainly
been closely involved in the project, which has been underway for
several months.
SISI'S INTENTIONS
The discussions are the strongest indication that Sisi may
restructure an economy suffering from corruption, red tape, high
unemployment and a widening budget deficit aggravated by the fuel
subsidies that cost nearly $19 billion a year.
Officials forecast economic growth at just 3.2 percent in the fiscal
year that begins July 1, well below levels needed to create enough
jobs for a rapidly growing population and ease widespread poverty.
The consultants have assigned sector teams to look at issues such as
privatizations and other reforms, said the source.
The toughest problem will be the energy subsidies. Raising fuel and
electricity prices could provoke unrest in a country where street
protests have helped to depose two leaders in three years.
"This should be changed but that's a political decision. Lazard and
Booz can only make recommendations but in the end the government
will decide," said the source.
Interim president Adly Mansour suggested in April that Egypt was
open to resuming privatization of state firms, a policy pursued by
President Hosni Mubarak before his fall in 2011.
Timing of the announcement of any reforms was "a political
decision," the source said, adding that it was not clear whether the
government would announce anything before parliamentary elections
expected later this year.
A spokeswoman for Strategy&, which was acquired by Price Waterhouse
Coopers in April, said she could not comment. A spokesman for Lazard
also declined to comment.
 However, UAE minister of state Sultan Ahmed al-Jaber, who handles
aid to Cairo, said his country is "providing Egypt with technical
support for the development of an economic recovery plan".
In a statement emailed to Reuters, he said the assistance the UAE
had provided included work by "world-renowned consultancies",
without giving further details.
The Gulf allies have indicated they will continue to support the new
government, with Saudi Arabia hosting a donor conference shortly
after Sisi takes office on Sunday.
GULF EFFICIENCY
During his election campaign, Sisi did not spell out how he would
steer Egypt's economy.
But businessmen who have met Sisi say his calls for "hard work" were
a signal he was willing to consider the kind of austerity measures
that past leaders have avoided.
The project began well before Sisi's election. "Booz has been
working for the past seven months on a reform plan in collaboration
with the Egyptian military," said Tarek Zakaria Tawfik, deputy
chairman of the Federation of Egyptian Industries (FEI), who said he
talked with the consultants this year and met Sisi in May.
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Although Sisi won strong public support for removing Mursi, failure
to revitalize the economy could quickly strip away his popularity
and bring Egyptians back onto the streets.
The military, which has a budget shielded from public oversight, has
accrued a business empire ranging from bottled water to petrol
stations. It is regarded as effective in implementing large-scale
projects such as those funded by the UAE since Mursi's overthrow.
An army spokesman was not immediately available for comment.
One businessman who met Sisi twice before the election said the
incoming leader knew about the consultants' activities. "(Sisi) will
be the one to announce the plan. He's well aware of (the
consultants)," said Tamer Abu Bakr, chairman of Mashreq Petroleum,
who discussed energy policy with Sisi.
No one on Sisi's staff was immediately available for comment.
Other prominent businessmen consulted about the plan told Reuters
that the international advisers were working with officials from
Egypt's central bank and ministries of finance and trade, industry
and investment.
One businessman said he met the consultants this year at the request
of a government official, discussing changes he hoped to see in
licensing regulations.
A spokeswoman at the central bank declined to comment. The finance
ministry and the ministry of trade, industry and investment could
not be reached immediately.
WELCOME REFORMS
Businessmen are encouraged by hints of economic reform that could
help Egypt to secure an IMF loan, unlocking billions of dollars more
in foreign aid and investment which dropped off after the 2011
uprising against Mubarak.
"If Sisi had intentions of maintaining the status quo regarding the
unbalanced economic situation, he never would have entertained
Booz," said Salah Diab, an Egyptian tycoon familiar with the
consulting project and met Sisi last month.
"Booz is preparing the Egyptian side ... If we are going to sit with
the IMF, we would be prepared to have an intelligent argument," he
added.
Mursi's government failed to secure a $4.8 billion IMF loan after
several rounds of talks, which analysts attributed to its
unwillingness to impose austerity reforms as a condition.
Proposed steps included cutting fuel subsidies, raising the sales
tax on goods and services, and taxing flotations on the stock
exchange.
Masood Ahmed, director of the IMF's Middle East-Central Asia
department, told Reuters the Fund had not yet been approached by
Egypt about restarting loan negotiations, but was open and eager for
that possibility.
UAE foreign minister Sheikh Abdullah bin Zayed said his country
would welcome partners including the IMF to participate in a plan it
has to revive Egypt's economy.
Tawfik, of the FEI, said he supported the strategy the consultants
were drafting which he learned about at a meeting with them to
discuss reforms of the agro-industrial sector.
"We saw eye-to-eye on almost everything ... I feel very comfortable
that what they are recommending is what needs to be done," he said.
(Additional reporting by Maha El Dahan in Abu Dhabi, Martin Dokoupil
in Dubai, Shadia Nasralla and Asma Alsharif in Cairo; Editing by
Michael Georgy and David Stamp)
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